It's late November. Your packaging supplier's annual letter arrives: "Due to continued increases in energy, freight and tariff costs, prices will rise 8% from 1 January 2027." Your finance team has already set the 2027 budget with 3% inflation across the board. You have five weeks.
Most buyers in that position either accept the 8% because the reasons sound right this year, or haggle it down to 5% and call that a win. Neither answer tells you what the increase should actually be, and neither protects you if the costs behind it fall back in March.
In Part 1 of this series we built a should-cost model for a bottle cap and used it to take apart a 10% price letter. This post takes the same approach into the 2027 round: what's changed this year, which costs are really moving, how big an increase should be, and how to plan contingency so one bad letter doesn't blow the budget.
What's Changed Since the Tariff Ruling?
Through 2025 a lot of supplier price letters carried a tariff line. On 20 February 2026 the US Supreme Court ruled that IEEPA doesn't give the President authority to impose tariffs, with potential refunds estimated at up to around US$170 billion. A temporary 10% global tariff under Section 122 followed within days, ran its 150 days and expired on 24 July. The same morning, Section 301 tariffs of 10% or 12.5% took effect on 60 economies. Thailand, Vietnam and China sit in the 12.5% group; Malaysia and Indonesia are at 10%. Unlike Section 122, the new duties have no built-in end date.
So a supplier selling into the US has priced under three tariff regimes in one year. Deloitte notes that sellers may now face customer claims for credits on perceived tariff-driven price increases, even where contracts say nothing about it. Before January, we'd ask every exposed supplier two things: which regime is your current price built on, and what happens to our price if duty you paid gets refunded?
What's Driving 2027 Prices?
Most annual increase letters arrive in November and December and take effect in January. This year they'll be written near what may be the top of the energy cycle.
With flows through the Strait of Hormuz still constrained, the US Energy Information Administration's October outlook puts Brent at about $105 a barrel in Q4 2026, falling to an $84 average in 2027 and around $74 by Q4 2027, assuming most Middle East production is back to pre-conflict levels by mid-2027. The IMF sees global inflation at 4.7% this year, easing to 4.1% in 2027, with the war's energy and food shock the main reason for the 2026 jump. Closer to home, the Bank of Thailand expects headline inflation to rise through Q1 2027 on El Niño and gradual cost pass-through, then fall back.
That timing is the point. A supplier who builds a 12-month increase on October's energy, resin and freight costs is locking in peak inputs for a year when the main forecast has several of those inputs coming down.
Example: The drivers worth checking line by line this round:
- Plastics and packaging: Asian PP and PE resin is range-bound at elevated levels, held up by crude and naphtha costs.
- Freight: Drewry's World Container Index rose 3% to $4,485 per 40ft container in mid-October.
- Metals: the US ISM prices index jumped to 77.9 in September from 71.1, with steel and aluminium named as the main drivers.
- Food ingredients: Allianz flags sugar, palm oil and rice as most at risk from a strong 2026-27 El Niño, including possible export bans.
- Electronics and IT hardware: UBS expects memory shortages to last until Q2 2028, so laptops, servers and anything with DRAM will keep coming with increases attached.
- Labour: check the actual local wage decision for 2027 before accepting any labour line. A supplier quoting "wage inflation" should be able to name the rate.
How Big Should the Increase Be?
A should-cost model gives you the answer per item, not per supplier:
Justified increase = sum of (cost share x change in that input)
Here's how that works for the bottle cap from Part 1. To be clear, this is an illustration of the method, not a forecast. The cost shares and input changes below are example figures for one plastic part, not market data for resin, energy or anything else:
| Cost line (example) | Share of price | Input change | Effect on price |
| Resin | 40% | +5% | +2.0% |
| Energy | 10% | +6% | +0.6% |
| Labour | 20% | +3% | +0.6% |
| Freight | 5% | +5% | +0.25% |
| Everything else | 25% | +2% | +0.5% |
| Total | about +4% |
Your numbers will be different. A carton, a cleaning contract and a laptop each have their own cost shares, and the input changes should come from the indices and wage decisions that apply to your products and your suppliers' locations. What carries over is the method.
In this example, if the letter says 8%, there's your conversation. And because resin and energy carry most of that 4%, they're the lines to index rather than fix for the year. If Brent follows the EIA path, those two lines should be coming down by the second half of 2027, and an index clause gives you that back without another negotiation.
You don't need a full model for every supplier to use this. Even rough cost shares from a supplier's own breakdown, or from a similar product you've modelled before, get you to a defensible range.
How Should you Plan for Price Increases in 2027?
A flat 5% contingency across the whole budget is easy to set and wrong for most categories, because the drivers aren't moving together. Memory is still climbing while oil is forecast to fall. Deloitte's 2025 CPO Survey found 72% of CPOs named margin improvement through cost reduction as a top priority, and a contingency plan that pays every increase in full works directly against that.
This is how I would set it up:
- Map your exposure. For your top 20 suppliers, put rough cost shares against the drivers above: energy, resin, freight, metals, tariffs, food inputs, memory and labour. The categories with two or three heavy exposures are where January will hurt.
- Write three scenarios with named triggers. Base case follows the EIA path, with Hormuz flows recovering through the first half of 2027. Stress case has the Strait constrained into mid-2027, Brent holding above $100 and El Niño hitting food crops. Relief case has a faster reopening and oil falling earlier. Run each through your exposure map to get a price range per category. Your contingency is the stress case minus the base case on exposed spend, not a percentage on everything.
- Agree the mechanism before the number. Index clauses that move down as well as up. Quarterly reviews on energy-heavy items until oil settles, instead of a fixed 12-month price. Caps and floors where the supplier wants certainty too. Fuel or war-risk surcharges shown as separate lines with an end date or an index level that switches them off.
- Keep tariffs on their own line. Tie the tariff line to the regime and HS code it's based on, and agree in writing that refunds get passed back.
- Protect supply where price and availability risk overlap. For memory and some food ingredients, a second source or buffer stock may be worth more than a few points of price. Stock ties up cash, though, so size it to the stress case, not to nerves. Payment terms are a lever here as well: a supplier squeezed by input costs may value faster payment more than a higher price.
- Watch the triggers monthly. Brent, Asian resin, the container index, USTR notices, Bank of Thailand decisions and your local wage announcements. When one crosses a scenario line, the response you agreed in advance kicks in, and nobody has to renegotiate from scratch.
- Fix the price for a year. Against the above, that's if you rather want to work with a know fixed input and have room to allow this certainty. But Keep in mind it's difficult to reduce next year, as your supplier will always have reason why they can't. Certainty comes at a price, can you afford that?.
What Do You Do With the Five Weeks?
Start with the letters you already expect: the top suppliers by spend that put prices up every January. Build rough cost shares for those first, get your three scenarios into the 2027 budget conversation with finance (remember my series on Zero Based Budgets you should be well on your way), and draft the index and tariff clauses before the first meeting, so the supplier is reacting to your structure rather than you reacting to theirs.
Back to that packaging letter. The buyer who haggles 8% down to 5% pays 5% all year, including the months when energy and resin are falling. The buyer who comes back with a 4% justified increase, the resin and energy lines on an index, and the tariff on its own line pays less by mid-year and has the next conversation already written into the contract.
I'm not good with Graphic Design, all the images are AI generated.